TheChek News Flow

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Another week of summer trading was punctuated by a few key data points and corporate developments. Positive data included the US August Consumer Confidence reading hitting an 11 month high, while China August Manufacturing PMI registered its first expansionary reading in 3 months and hit a 22 month high. Then on Friday, the US nonfarm payroll data missed expectations and showed some deterioration in hourly earnings and weekly hours. This led to Fed Fund futures indicating a lesser chance of a September rate hike, shifting concerns about tighter US rates to December. However, some experts including Goldman's chief economist Jan Hatzius, cautioned that the payroll gain at 151K was good enough for the Fed to greenlight a September rate hike. Hours after the data, Fed hawk Lacker tried to start that sentiment shift by stating that Fed funds rate should be considerably higher than it is now.

In corporate news, Mylan attempted to stem the tide of bad news flow by launching a generic version of its own EpiPen, but that did not deter a rare bi-partisan group of Congressmen from demanding the company appear to provide for testimony. A lackluster quarterly earnings report from Salesforce.com may be an indication that the breakneck pace of growth in the cloud sector may be starting to slow. Canadian fertilizer producers Potash Corp and Agrium confirmed they are in preliminary merger discussions, though press reports said a deal could be announced as soon as next week. Meanwhile, Mondelez dropped its pursuit of Hersey. Wynn and Las Vegas Sands saw good gains on Thursday as monthly Macau casino revenue rose for the first time in 27 months. 

WTI crude futures slipped about 7% on the week as OPEC notched another record high month of production and traders remained skeptical that the cartel can reach a deal on a production freeze. Most currency pairs remained in tight ranges, with the EUR/USD holding below the 1.12 level most of the week. The yen was a notable exception, rising from 102 to 104 over the course of the week, despite the yield on the bellwether 10-year Japanese government bond moving higher towards zero percent (but remaining in negative territory), reaching a 5-month highs. Policy divergence between the BOJ and the Fed contributed to the yen's underperformance. Equity indices traded sideways and for the week the DJIA rose 0.5%, the S&P500 gained 0.5%, the Nasdaq edged up 0.6%.

Macro :

- G-20 Statement Said to Make Reference to Steel Market Glut

- Russia Needs to Cut Key Rate Much Faster Than Now: VTB’s Kostin

- OECD Says Central Banks Near Limits to Stimulate Growth: Reuters

- May Warns of ‘Difficulties Times Ahead’ for U.K. Economy

- With Nowhere to Go, This $64 Billion Asset Manager Bets on VIX

- Draghi Nears His QE3 as ECB Seen Relying on Ever-More Stimulus

Keep an eye on :

- AC FP : Accor Keen to Increase Presence in Japan, Myanmar, India: BT

- IF IM : Banca Ifis Is Considering Buying EU2b Bad Loans by Year End

- BAYN GY : Bayer Supervisory Bd May Discuss Higher Monsanto Bid Sep 14: RP

- BLT LN : BHP Billiton Says Higher Iron Ore Tax ‘Bad Policy’: AFR, May Says Still Deliberating on Hinkley, Hasn’t Decided Yet

- CA FP : Carrefour Planning IPO of Brazil Unit for First Half 2017: Globo

- CO FP : Carrefour Planning IPO of Brazil Unit for First Half 2017: Globo

- EDF FP : EDF Says U.K. May Need to Take GBP6b Stake in Hinkley Point: FT (Sent Friday)

- EDF FP : Scottish Power CEO Says Hinkley Deal Too Expensive: S. Telegraph

- EDF FP : EDF, CGN May Receive More Than GBP100b Over 35Y for Hinkley: FT

- EAON GY : E.ON CEO Sees Turbulent Uniper IPO, Possible Writedowns: FAS

- EXOR IM : Exor Shareholders Approve Merger Into Dutch Holding Company

- FCA IM : Elkann Says Spoke With Samsung’s Lee on Marelli, Other Topics

- GKP LN : Capital Group Said to Provide $20m to Gulf Keystone: Telegraph

- ISP IM : Intesa Chairman Says Confident Monte Paschi Issue to Be Solved

- KPN NA : KPN Reports Disruption to Dutch Internet Service in Tweet

- LBTYA US : Liberty Media to Buy Formula One Stake: Auto, Motor und Sport

- MKS LN : M&S to Cut About 500 Jobs at London Head Office, Sky News Says

- MON US : Bayer Supervisory Bd May Discuss Higher Monsanto Bid Sep 14: RP

- NG/ LN : N.Grid gas network bid group lines up Balfour Beatty chairman to bolster approach as Borealis pulls out

- NOVN VX : Novartis Gets FDA Orphan Status for Dabrafenib And Trametinib

- NOVOB DC : Novo Nordisk FDA Extends Regulatory IDegLira Review by 3 Months

- RWE GY : RWE’s Atomic Risk Seen Longer by Paying by Installments: Spiegel

- SAN FP : Sanofi Seeks U.S. Funding in Race to Develop Vaccine for Zika

- SKY LN : CVC Plans GBP1.5b Listing for Sky Bet, Sunday Telegraph (20% own by SKY )

- SPW LN : Scottish Power CEO Says Hinkley Deal Too Expensive: S. Telegraph

- TEF SM : Telefonica Said to Plan Telxius IPO Filing as Soon as Monday

- TEF SM : Telefonica Eyes GBP10b Float of O2 Stake by Yr-End: Telegraph

- UBER IPO : Uber Tried to Buy Lyft in 2014, CEO Kalanick Tells The Economist

- VOLVB SS : Volvo Plans to Start Self-Driving Tests in China Next Year

- VOW3 GY : VW Sued by Ex-Bentley Chief Over Patent Payout: Spiegel

- ZC FP : Zodiac Aerospace Says Operating Income to Miss Street Est.

Next Week Calendar :

• The U.S. and Canada celebrate Labor Day holidays. Markets are closed.
  
  
• The G-20 Summit of world leaders winds down in Hangzhou, China.
  
  
• Argentine President Mauricio Macri meets with Spanish Prime MinisterMariano Rajoy and Indian Prime Minister Narendra Modi in Shanghai. Timing to be determined.
  
  
• Barack Obama becomes the first sitting U.S. president to visit Laos. He will meet with Prime Minister Thongloun Sisoulith and give a speech in Vientiane about his Asia policy and the Trans-Pacific Partnership trade agreement that he supports. Obama also will meet new Philippine President Rodrigo Duterte. Through Sept. 7.
  
  
• Bank of Japan Governor Haruhiko Kuroda speaks at a Kyodo News event in Tokyo. 11:30 (09/04 22:30 EDT).
  
  
• Dutch Finance Minister and Eurogroup head Jeroen Dijsselbloem speaks at Tilburg University in the Netherlands a 16:00 CET (10:00 EDT).
  
  
• Members of Britain’s House of Commons debate a petition calling for a second referendum on EU membership. There will be no vote. Starts at 16:00 in London (11:00 EDT).
  
  
• FT Commodities Asia Summit, “Trading through Uncertainty,” will feature speeches by Shanghai Gold Exchange Chairman Jiao Jinpu and Bank of China International’s Head of Commodity Markets Strategy Xiao Fu. In Singapore. For agenda, click here.
  
  
• Monthly ECB quantitative easing tally. 15:45 CET in Frankfurt (09:45 EDT).
  
  
• ECONOMY: Colombia inflation (Aug.); Caixin China services PMI (Aug.); Singapore PMI (Aug.); South Africa whole economy PMI (Aug.); euro-areaservices PMI (Aug.); U.K. services PMI (Aug.); Turkey inflation (Aug.); Egypt PMI (Aug.); Hungary retail sales (July); Czech retail sales (July)
  
  
• EARNINGS: Sofina SA is among companies announcing earnings. For an expanded list of today’s releases, click here.
  
  
• ENERGY/COMMODITIES: ICE Futures Europe releases its weekly Commitments of Traders report; U.S. Department of Agriculture weeklycrop progress report
  

• Growth at U.S. service providers was probably little changed in August from a month earlier, consistent with forecasts for faster economic expansion in the third quarter. The Institute for Supply Management releases data at 10:00 in Washington.
  
  
• Laos hosts the 28th Association of Southeast Asian Nations Summit in Vientiane, which will be held jointly with the East Asian Summit, and attended by leaders from the U.S., Japan, Russia, China, India, New Zealand, Australia and South Korea. Through Sept. 8.
  
  
• U.S. Federal Reserve Bank of San Francisco President John Williams will discuss the economic outlook and take questions at the Hayek Group in Reno, Nevada. 18:15 (21:15 EDT).
  
  
• The U.S. House and Senate return from a seven-week recess. They need to pass a stopgap spending bill to keep the government running before funding runs out on Sept. 30. Lawmakers probably will clash over money to fight the Zika virus, as well as a White House request to restore full lending authority to the U.S. Export-Import Bank.
  
  
• The Barclays CEO Energy Power conference is held in New York City. Presenters include Marathon Petroleum Corp. Chief Executive Officer Gary Heminger and Williams Cos. Inc.’s CEO Alan Armstrong. Through Sept. 8.
  
  
• The Asia Pacific Petroleum Conference, one of the global oil industry’s biggest events, is held in Singapore through Sept. 8.
  
  
• Swiss National Bank President Thomas Jordan speaks in Lucerne. 18:15 CET (12:15 EDT).
  
  
• German Finance Minister Wolfgang Schaeuble formally presents the government’s 2017 budget to parliament. 10:00 CET in Berlin (04:00 EDT).
  
  
• Dutch Finance Minister and Eurogroup head Jeroen Dijsselbloem speaks in Brussels at 19:00 CET (13:00 EDT).
  
  
• CENTRAL BANKS: Brazil minutes, Australia rate decision
  
  
• ECONOMY: U.S. Markit services PMI (Aug. final) and labor market conditions index (Aug.); Bloomberg Nanos Canadian Confidence Index(weekly); Taiwan CPI (Aug.); New Zealand house prices (Aug.); Philippines CPI (Aug.); South Africa GDP (second quarter); euro-areaGDP (second quarter, final); German factory orders (July); Swiss GDP(second quarter); Hungary GDP (second quarter, final) and industrial output (July); Slovakia GDP (second quarter, final)
  
  
• EARNINGS: Marvell Technology Group Ltd. is among companies announcing earnings. For an expanded list of today’s releases, click here.
  

• Bank of England Governor Mark Carney testifies before Parliament on policy alongside Deputy Governor Jon Cunliffe and officials Kristin Forbesand Ian McCafferty. In August, the central bank unleashed a package including the first interest-rate cut in seven years and said more easing could come as Britain feels the effects of its decision to leave the European Union. 14:15 in London (09:15 EDT).

• Apple Inc. holds a keynote event. Company executives will likely present the iPhone 7, a new Apple Watch and improvements to the iOS 10 operating system. 10:00 (13:00 EDT) in San Francisco.
  
  
• The Bank of Canada is expected to keep its benchmark interest rate at 0.5 percent, with the decision due at 10:00 EDT.
  
  
• The Wells Fargo Securities Healthcare conference is held in Boston. Participants include Medtronic Plc, Merck & Co. and Gilead Sciences Inc. Click here for agenda. Through Sept. 8.
  
  
• Keefe, Bruyette & Woods hosts its annual Insurance Conference in New York City. Participants include Third Point Reinsurance Ltd. and Chubb Ltd. Click here for agenda. Through Sept. 8.
  
  
• German Chancellor Angela Merkel speaks in parliament during the 2017 German federal budget debate. 09:00 CET in Berlin (03:00 EDT).
  
  
• Michel Barnier, who is leading the European Union’s negotiations with the U.K. over its departure from the bloc, speaks on a panel in Brussels at 13:45 CET (07:45 EDT).
  
  
• Scotiabank hosts its annual Financials Summit in Toronto. This year’s participants include Sun Life Financial Inc. and TD Bank Group. See agenda here. Through Sept. 8.
  
  
• CENTRAL BANKS: Federal Reserve Beige Book; Argentina monetary report; rate decisions in Sweden, Poland, Georgia and Malaysia.
  
  
• ECONOMY: U.S. MBA mortgage applications (weekly) and JOLTS job openings (July); Russia CPI (weekly); China foreign exchange reserves(Aug.); Taiwan trade (Aug.); Australia GDP (second quarter); South Africa gross and net reserves (Aug.), monthly business confidence (Aug.) and quarterly business confidence (third quarter); German industrial production (July); U.K. Halifax house prices (Aug.), industrial production(July) and NIESR GDP estimate (Aug.); Israel foreign currency balance(Aug.); Croatia GDP (second quarter, final)
  
  
• EARNINGS: Hewlett Packard Enterprise Co. and Steinhoff International Holdings NV are among companies announcing earnings. For a list of today’s releases, click here.
  
  
• ENERGY/COMMODITIES: U.S. Energy Information Administration short-termEnergy Outlook (monthly), Bloomberg survey of analysts’ expectations on natural gas volume in storage (weekly)
  

• The ECB’s Governing Council meets to review interest rates and stimulus programs. Rate decision at 13:45 in Frankfurt (07:45 EDT), followed by ECB President Mario Draghi’s press conference at 14:30.
  
  
• Bank of Canada Deputy Governor Timothy Lane addresses the Thunder Bay Chamber of Commerce in Thunder Bay, Ontario. 12:20 EDT.
  
  
• U.S. President Barack Obama attends the East Asia Summit in Vientiane, Laos. He will hold a press conference before returning to Washington on Sept. 9.
  
  
• The Economist Mexico Summit is held in Mexico City. Featured speakers include Mexican Undersecretary of Communications Monica Aspe, Petroleos Mexicanos CEO Jose Antonio Gonzalez and Todd Harbaugh, chief operating officer of Wal-Mart de Mexico SAB. Event begins at 09:00 (10:00 EDT).
  
  
• Mexican Finance Minister Luis Videgaray is expected to present the budget bill to Congress for 2017 amid expectations of significant spending cuts and lower growth.
  
  
• Japan releases updated gross domestic product data for the second quarter. A preliminary reading points to an annualized gain of 0.2 percent from the first quarter. 08:50 (09/07 19:50 EDT).
  
  
• French President Francois Hollande delivers a speech on terrorism at 12:00 CET in Paris (06:00 EDT).
  
  
• U.K. Chancellor of the Exchequer Philip Hammond faces questions on policy from the House of Lords Economic Affairs Committee. 15:35 in London (10:35 EDT).
  
  
• South African Finance Minister Pravin Gordhan is scheduled to speak at a book fair in Cape Town. About 10:00 (04:00 EDT).
  
  
• CENTRAL BANKS: Rate decisions in Peru and Serbia.
  
  
• ECONOMY: U.S. jobless claims (weekly), consumer credit (July) andBloomberg Consumer Comfort (weekly); Mexico inflation (Aug.); Chileinflation (Aug.); China trade (Aug.); South Africa mining production andmanufacturing production (July); U.K. RICS house prices (Aug.); Turkeyindustrial production (July); Egypt inflation (Aug.); Hungary inflation(Aug.); Estonia GDP (second quarter, final)
  
  
• EARNINGS: Sun Hung Kai Properties Ltd. is among companies announcing earnings. For an expanded list of today’s releases, click here.
  
  
• ENERGY/COMMODITIES: U.S. EIA crude oil inventory report (weekly), with real-time coverage on the TOPLive blog; EIA natural gas inventory report (weekly); Bloomberg survey of analysts’ expectations on natural gas prices; United Nations’ Food and Agricultural Organization releasesmonthly food-price index
  
  
• The National Football League season begins with a replay of Super Bowl 2016 between the champion Denver Broncos and the Carolina Panthers. 18:30 in Denver (20:30 EDT).
  

• Federal Reserve Bank of Boston President Eric Rosengren is the keynote speaker at the South Shore Chamber of Commerce breakfast meeting in Quincy, Massachusetts. 07:45 EDT.
  
  
• Euro-area finance ministers and central bank governors meet in Bratislava. Italian banks, Brexit and the budget outlook are possible topics of discussion. 09:00 CET (03:00 EDT).
  
  
• Greek Prime Minister Alexis Tsipras hosts the leaders of Italy, Spain, France, Portugal, Cyprus and Malta. Joint press conference scheduled for 16:15 in Athens (09:15 EDT).
  
  
• ECONOMY: Canada unemployment (Aug.); U.S. wholesale inventories (July, final); Brazil IPCA inflation (Aug.); Mexico industrial production (July); China CPI (Aug.); Philippines unemployment (July); German trade balance (July); France industrial production (July); Spain industrial output (July); U.K. trade balance (July); Russia GDP (second quarter) as soon as today; Czech inflation (Aug.)
  
  
• EARNINGS: Kroger Co. is among companies announcing earnings. For an expanded list of today’s releases, click here.
  
  
• ENERGY/COMMODITIES: Baker Hughes U.S. oil-and-gas rig count (weekly); CFTC report on futures and options positions for oil
  
  
• SOVEREIGN RATING UPDATES: Bosnia & Herzegovina (S&P); Finland(DBRS); Kazakhstan (S&P); Lithuania (Moody’s); Poland (Moody’s);Rwanda (S&P)
  

• The women’s final of the U.S. Open tennis tournament begins at 16:00 EDT in Flushing, New York. Click here for schedule.

EDF and its Chinese partner could be paid more than £100bn over 35 years for Hinkley Point C’s electricity if the UK government gives the go-ahead to the French utility’s contentious nuclear power station, according to analyses commissioned by the Financial Times.

The total revenue that EDF and CGN secure from Hinkley Point C could even be as high as £160bn, said three analysts, depending on assumptions about inflation, plant output and idle time for maintenance.

These figures are likely to be seized on by critics of Hinkley, who argue that the British government was far too generous in 2013 by guaranteeing that the EDF-led consortium will be paid £92.50 per megawatt hour for electricity, uprated annually for inflation, during the nuclear power station first 35 years of operation.

There are also rising concerns over whether Chinese involvement in the project could be a threat to security. Theresa May, the UK prime minister, revealed on Sunday that the government would consult security experts on Chinese involvement in the UK’s nuclear power sector. Both EDF and CGN are state-backed companies.

The announcement follows the prime minister’s surprise decision in July to hold a review of the £18bn project in south-west England, which will also be asking questions about value for money.

Customers will be forced to pay a significant share of the expected revenue through special charges on their energy bills if wholesale electricity prices fall below £92.50 per MWh in the contract period. The rate is currently £41.95, according to ICIS Power Index. A recent projection by the UK’s National Audit Office put the customer subsidy at £30bn — almost five times the original estimate.

Juan Rodriguez, analyst at AlphaValue, estimated Hinkley Point C’s total revenue in cash terms at £102bn, assuming that the plant ran at 90 per cent capacity for 90 per cent of the time over the duration of the contract. It also assumes an inflation rate of 1 per cent.

“That is why [EDF] want to build the Hinkley Point project so badly,” said Mr Rodriguez. “If they manage to build it on time, it will be a cash machine.”

Two other analysts were more optimistic, saying Hinkley could run at close to full power for 90 per cent of the time, which would generate revenue closer to £115bn in cash terms over the 35 years.

If the inflation rate was 2 per cent, the total revenue could rise to as much as £160bn. Analysts cautioned that the large numbers for Hinkley Point C’s estimated revenue partly reflect the impact of inflation over the life of the contract, so its value at current prices would be less.

Mr Rodriguez said that applying a so-called discount rate to Hinkley Point C’s estimated revenue, to reflect the fact that money earned today is worth more than that secured in the future, could bring the value down to £89.6bn.

Officials at the UK parliament have estimated the plant’s total revenue at £72bn at 2015-16 prices, and after applying a discount rate.

EDF, which is due to have a 66.5 per cent stake in Hinkley Point C, with CGN holding the remainder, declined to provide a revenue figure for the plant and would not comment on the analysts’ estimates.

EDF said in July it expected to secure a 9 per cent internal rate of return on its investment at Hinkley.

In spite of the significant revenue and profit that EDF is expected to earn, there is disagreement among the company’s board members and managers over the project given that the £18bn cost could escalate and the French utility has sizeable investment obligations at home.

The first time you see a self-driving car, it may not be a car. It may be a semi-truck, speeding alongside you on the highway.

If that notion makes you flinch a bit, you’re not alone. But technologists who are betting on self-driving technology have a compelling argument that trucks + interstates are a natural early step for autonomous vehicles.

That’s one of the reasons Uber bought Otto, a brand-new self-driving truck startup, for $680 million last month.

You won’t see an Otto truck on the road today. But when and if you do, you may feel better knowing that company’s lineage traces back to Google’s self-driving car research.*

Another thing about self-driving cars — they make for really cool videos. Here’s one generated from Otto’s own footage.

David Oakley considers the consequences of quantitative easing and ultra-low interest rate policies

“We are part of the biggest financial experiment in world history and the consequences are yet unknown.”

These were the words of Lord Rothschild, scion of the Rothschild banking dynasty and chairman of RIT Capital Partners, the investment trust, last month in his semi-annual financial statement to investors.

This financial experiment has distorted markets and propelled equity and bond prices to record highs. Central bank quantitative easing and ultra-low interest rate policies have fuelled simultaneous bull runs in stocks and bonds.

It is hard not to jump to the conclusion that these bull runs have bubble-like qualities. In other words, some asset prices have gone up too much and must burst at some point.

Valuations in two particular markets look extremely stretched: US large-cap equities and government bonds.

The biggest companies in the US are trading at historically high valuations last seen in July 2015, just before the market plunged because of worries about China’s economy, says OTAS Technologies, the data company.

Of the top 500 companies in the US, the median valuation is trading at an 18 per cent premium to the 10-year average.

The risks of a violent reverse, therefore, may be in the large US companies on the S&P 500, which is trading around all-time highs, rather than other markets. Valuations in small and medium-sized US companies and European stocks are well below their peaks.

James Maltin, investment director at Rathbones, the wealth manager, says: “There is a wide gap in valuations between the large-cap US stocks, and the mid-caps and smaller companies. QE [quantitative easing] has driven the big stocks higher.

“It is the US large-caps where the valuations are artificially stretched by QE. If you scratch below the surface to the smaller stocks, you will find value.”

Although he is not warning that these large US stocks will sell off, he is not buying them at these prices and valuations.

Other fund managers are more worried. The speed of the upwards move in equities since the UK voted to leave the EU in the June referendum has taken them by surprise. Matthew Beesley, head of global equities at Henderson, the investment group, says: “Equity markets are on a giant piece of elastic that could snap at any moment.”

Adding to the chances of a sudden reverse are a large number of equity investors who are doubling up on high share prices by selling put options too, says OTAS.

This commits them to buying the shares should prices fall. These investors are exposed to an equity market sell-off through both their ownership of the stock and the recently written put options.

In bonds, valuations look just as stretched, particularly in the sovereign markets, where the biggest price distortions can be found because QE programmes have largely involved buying government debt.

Government bond yields, which trade inversely with prices, have been driven down to record lows by QE purchases and ultra-low interest rates. According to Andy Haldane, the chief economist at the Bank of England, interest rates might be at the lowest levels since the beginning of civilisation, 5,000 years ago.

Some fixed income investors are also issuing apocalyptic warnings. Bill Gross, the lead portfolio manager at Janus Capital and co-founder of bond house Pimco, says inflated fixed income prices and ultra-low yields have created a “supernova that will explode one day”.

Mr Gross may be painting an overly pessimistic picture. It is difficult to forecast where the financial experiment might lead us.

As Lord Rothschild also said in his financial report last month: “We are in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates.”

However, the sensible fund manager should take some form of defensive action. In the case of Mr Maltin, he has taken on his largest position in gold bullion.

Trading 30 per cent below its 2011 peaks, gold looks good value. It is the ideal hedge against market volatility and inflation, which the great financial experiment may one day unleash.

With Obama Humiliated, Leaked G-20 Draft Reveals More Fiscal, Monetary Stimulus Coming